Contestable Market Model

The contestable market model3 alters a different assumption of the perfect competition model: the existence of many sellers, each of which is a barely discernable portion of all sales in the market. When we consider most of the markets that exist in the real world, it is rare that this condition of the perfect competition model applies. Rather, most markets have sellers that represent a substantial presence and would noticeably change the market if any one of them would suddenly suspend production and sales. Also, in many industries, the minimum efficient scale is so large that any firm that manages to increase to that size will be necessarily contributing a substantial fraction of all market sales.

In the contestable ...

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